Employee Arbitration Agreement

Many companies favor the use of arbitration to settle disputes with their current and former employees.  Arbitration is viewed as a quicker and cheaper dispute resolution process.  The requirement to arbitrate disputes is often included in company handbooks.  Company handbooks, however, often include language that nullifies the requirement to arbitrate.

In Cheek v. United Healthcare of the Mid-Atlantic, Inc., 378 Md. 139 (2003), a company’s handbook required employee disputes to be arbitrated.  However, the handbook included the following language:

“[the company] reserves the right to alter, amend, modify, or revoke the [handbook] at its sole and absolute discretion at any time with or without notice. The senior executive of  Human Resources has the sole authority to alter, amend, modify, or revoke the [handbook].”

The Court held the mandatory arbitration requirement in the handbook to be void and unenforceable.  Because the company could change the terms of the handbook, including the arbitration provision, there was a lack of consideration by the company and the provision was illusory. 

In a more recent case, Holloman v. Circuit City Stores, Inc., the Court of Appeals of Maryland upheld an arbitration clause contained in an application, even though the arbitration clause was subject to change by the company.  The right to amend the clause was limited.  Specifically, the company could change the clause, but only once per year and after 30 days notice to employees.  The Court found that the restrictions placed upon the company’s right to change the arbitration clause were sufficient consideration to create a contract.

In order to protect a against having a court declare an arbitration clause in an employment handbook void, a company must not have a blanket provision stating that it can change the policies at its sole discretion at any time.  If a handbook does include such a provision and the company feels it is important to be able to change the handbook at any time, a disclaimer should be added that excludes waivers of rights by the employee or otherwise clearly indicates that the terms, including arbitration provision, are binding for a period of time and cannot be changed without notice.